Romania’s central bank, the National Bank of Romania (BNR), decided to keep the monetary policy rate unchanged at 6.5% at its April 7 board meeting, opting for caution amid a rapidly shifting macroeconomic environment shaped by both domestic fiscal uncertainties and external shocks stemming from the Middle East conflict.

While the decision itself was widely expected, the central bank’s forward guidance marked a clear shift in tone: inflation risks are now tilted to the upside in the short term, effectively pushing expectations for monetary easing further into the future.

The annual inflation rate continued to decrease slowly in the first two months of 2026 to reach 9.31% in February from 9.69% in December 2025. In turn, the annual adjusted CORE2 inflation rate halted its rise at the beginning of the year, posting a small drop in the first two months as a whole – to 8.3% in February 2026 from 8.5% in December 2025.  The inflation forecast, dated before the Middle East conflict began, envisages 3.9% yearend inflation after base effects dissipate through H2.

The BNR signalled, following the April 7 board meeting, that inflation is likely to accelerate in the second quarter of 2026, reaching levels higher than previously anticipated. The year-end projection may also be revised in May. The primary driver behind this revision is the surge in energy prices—particularly oil and natural gas—triggered by escalating geopolitical tensions in the Middle East. Rising fuel costs are expected to feed directly into consumer prices, adding to existing pressures in the energy segment.

These inflationary effects will be compounded by still unfavourable base effects in Q2, as well as the lingering impact of earlier policy changes, including the expiration of electricity price caps and increases in VAT rates and excise duties introduced in the second half of 2025. However, BNR expects these temporary factors to dissipate in the second half of the year, leading to a relatively sharp downward correction in inflation starting in Q3.

At the same time, the central bank emphasised that underlying disinflationary pressures remain in place, largely due to weak aggregate demand. The ongoing fiscal consolidation process—initiated in 2025 and expected to continue —is seen as a key factor in dampening demand-side inflation. This adjustment is also expected to contribute to a gradual narrowing of the current account deficit.

Nevertheless, the balance between inflationary and disinflationary forces has become increasingly complex. BNR highlighted a high degree of uncertainty surrounding both domestic and external developments. On the domestic side, questions remain regarding the government’s ability to maintain fiscal discipline beyond 2026 and to implement additional measures required under the EU’s Excessive Deficit Procedure. On the external front, the evolution of the Middle East conflict and the associated energy crisis pose significant risks—not only through direct price channels but also via broader impacts on global growth, trade, and investor sentiment toward emerging markets.

Recent macroeconomic data further complicates the picture. While BNR noted a slight quarter-on-quarter recovery in economic activity in Q1 2026, the annual GDP dynamics appear to have weakened again. High-frequency indicators point to subdued demand: retail sales and services consumption posted sharper annual declines in January, construction activity slipped back into negative territory, and industrial output contracted more steeply. External trade also deteriorated, with exports declining more rapidly and the trade balance worsening, although the current account deficit showed some improvement due to stronger secondary income flows.

This mixed macroeconomic backdrop reinforces the central bank’s cautious stance. By keeping rates unchanged, BNR aims to anchor inflation expectations while preserving flexibility in the face of evolving risks. The bank reiterated that its primary objective remains price stability over the medium term, but it also acknowledged the importance of supporting sustainable economic growth.

Market expectations have adjusted accordingly. Analysts increasingly believe that any potential rate cuts have been pushed back toward the end of the year, with November now seen as the earliest plausible window—coinciding with the release of updated macroeconomic forecasts. Erste Group, for instance, revised its year-end inflation forecast upward to 5.1% (from 4.6%) and noted that, while still unlikely, even the possibility of rate hikes has entered the discussion—something that was not on the radar before the recent escalation in geopolitical tensions.

In this low-growth context, EU funds—particularly those under the National Recovery and Resilience Plan (NRRP)—are becoming even more critical. BNR stressed that effective absorption of these funds is essential to offset the contractionary effects of fiscal tightening and external shocks, while also supporting structural reforms and the energy transition.

Overall, the central bank’s latest decision underscores a shift from a relatively predictable disinflation path to a far more uncertain environment. With inflation set to rise again in the short term and growth signals remaining weak, Romania’s monetary policy is entering a holding pattern—waiting for greater clarity before making its next move.